The Davy Digest - 11th August 2025

Trade tensions remained at the forefront of global news flow last week, with Switzerland suddenly facing one of the steepest tariff rates among US trading partners at 39%. Furthermore, tariffs on gold imports and appointments to the US Federal Reserve added to volatility. Despite worse-than-expected labour market data in the US earlier in the month, initial jobless claims on Thursday suggested that employers are avoiding large-scale layoffs, rising by only 7k in the week to 226k. Meanwhile, equities maintained their upward trajectory, buoyed by the Federal Reserve’s dovish shift and a strong earnings season. European stocks also ended the week higher, although they struggled to keep up with US earnings growth. In the UK, the Bank of England cut interest rates by 25 basis points to 4% as expected. However, the narrow margin of the vote and upward revisions to inflation forecasts led investors to temper expectations for additional rate cuts. Elsewhere, China’s exports surged 7.2% year-on-year in July, while direct exports to the US declined by over 20% in the same month. Finally, the Reserve Bank of India left rates unchanged, cutting its inflation forecast to 3.1% and leaving its 6.5% GDP growth forecast unchanged.

Last week's highlights

	US ISM Services PMI (05/08) – Reduced to 50.1 in July, vs 50.8 in June. US Bond Auctions (06 & 07/08) – Marginal rise in yield after soft demand for 10 & 30 year bonds. Initial Jobless Claims (07/08) – Rose by more than expected to 226k.
	Eurozone Retail Sales (06/08) – Increased by 0.3% in June month-on-month, better than the previous reading. Germany Balance of Trade (07/08) – Down to €14.9bn in June vs €18.4bn in May.
	Bank of England Meeting (07/08) – Cuts interest rates by 0.25% to 4% after a narrow vote. UK Halifax House Price Index (07/08) – Increased by 0.4% in July, the highest since the start of the year.
	China Caixin Services PMI (05/08) – Unexpectedly jumped to 52.6. Reserve Bank of India Meeting (06/08) – Kept rates steady at 5.5%. Cut inflation rate forecast to 3.1%, left 6.5% GDP growth forecast unchanged.  China Exports Data (07/08) – Up 7.2% in July, year-on-year.

Looking ahead to this week, US inflation data will be closely watched ahead of the Federal Reserve’s next interest rate decision in September. Investors will also receive data on retail sales and consumer sentiment in the US. In the Eurozone, investors will see industrial production figures come out on Thursday. Elsewhere, in the UK, data on unemployment will be published on Tuesday, followed by GDP figures on Thursday, as the country continues to struggle with sluggish growth and stubborn inflation. Finally, on Friday, Japan will release GDP data, while China will publish data on both retail sales and industrial production.

What's on the radar

	US Inflation (CPI) (12/08) US Retail Sales (15/08) Michigan Consumer Sentiment (15/08)
	Eurozone Industrial Production (14/08) Eurozone ZEW Sentiment (12/08)
	UK Unemployment Rate (12/08) UK GDP (14/08)
	Japan GDP (15/08) China Retail Sales (15/08) & Industrial Production (15/08) Australia Interest Rate Decision (12/08)

Chart of the moment - Chat GDP

Source: Bloomberg. GDP = Gross Domestic Product. Contribution to GDP growth is measured as average contribution to quarter-on-quarter growth over previous two quarters. Consumer spending defined as Personal Consumption Expenditures component of U.S. Gross Domestic Product. AI spending defined as Information Processing Equipment and Software components of U.S. Gross Domestic Product.

• As consumer spending slows down in the US, massive artificial intelligence (AI) capital expenditure is buoying economic growth.
• Over the last two quarters, spending on AI has added more to GDP growth than consumer spending.
• Technology companies in the US have repeatedly ramped up their capex plans for the remainder of the year, with Alphabet raising their spending guidance to $85 billion.
• Meanwhile, the US consumer faces continued economic and political uncertainty which threatens to stifle spending and prolong this trend over the coming months.